Accusations that Herbalife Ltd. is a pyramid scheme have no merit, Third Point’s Daniel Loeb said in a letter to investors, adding the nutritional-supplement maker’s stock price could have at least 40% to 70% upside from current levels.

“The pyramid scheme is a serious accusation that we have studied closely with our advisors,” Loeb wrote. “We do not believe it has merit.”

Earlier Wednesday, Third Point disclosed in a regulatory filing that it has taken an 8.2% passive stake in Herbalife, taking an opposite position than fellow hedge-fund manager Bill Ackman who last month announced his firm had an “enormous” short position against the company.

Third Point’s disclosure comes a day before Herbalife’s analyst and investor meeting, in which the company plans to combat recent criticism about the its business model.

“The short thesis rests on the notion that the FTC has been asleep at the switch, missed a massive fraud for over three decades, and will shortly awaken (at the behest of hedge fund short seller) to shut down the Company,” Loeb said in the letter. “We find this thesis to be preposterous, particularly since the FTC has been sensitive to frauds of this kind.”

Loeb noted the FTC has brought 13 separate cases against alleged pyramid schemes since 1997. None of those companies had been in business for more than ten years, he noted, and 11 of them were less than five years old.

Herbalife has been in business for 32 years.

Loeb said Ackman’s presentation provided “little ‘new’ news” when it comes to Herbalife’s business model and provided “no evidence to show that Herbalife has crossed a line that would compel regulators to shut it down.”

Herbalife shares traded roughly flat at $38.50, after WSJ reported the SEC has opened an inquiry into the company. The stock traded as low as $26.06 on Christmas Eve, days after Ackman disclosed his position against Herbalife, before recently rebounding. Shares are down more than 20% over the last 12 months.

Loeb is optimistic the stock price has plenty of upside remaining.

“We believe that continued strong operating performance combined with disciplined capital return could easily send the stock back towards its April highs,” Loeb said in the letter. The stock traded in the low $70s in late April.

“Let’s not forget: the business itself is performing well. Volume, revenue and earnings are all growing double digits and the balance sheet is largely unlevered,” Loeb said. “…Applying a modest 10-12x earnings multiple suggests Herbalife’s shares are worth $55-$68, offering 40-70% upside from here and making the company a compelling long investment for Third Point.”

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